Emirates NBD's net profit jumped 17% on stable margins, effective cost management and a significant reduction in the cost of risk reflecting improved business sentiment.
Dubai, 28 July 2021
Emirates NBD's net profit jumped 17% on stable margins, effective cost management and a significant reduction in the cost of risk reflecting improved business sentiment. The Group's strong first-half results demonstrate financial resiliency and the success of its diversified business model. Emirates NBD continues to support businesses and customers recovering from the global pandemic, while accelerating the pace of investment in digital and its international network to support future growth. Retail lending recorded its best ever quarter, including record growth for credit cards, personal loans, and home loans.
Key Highlights – First-Half-2021
> Strong operating performance on higher transaction volumes reflecting improving economic conditions coupled with firm cost management
- Total income up 9% over the preceding half year due to a marked increase in transactions and stable NIMs
- Expenses declined 6% y-o-y to AED 3.8 billion on disciplined cost management action
- Impairment allowances reduced 38% y-o-y with cost of risk substantially improving to 114bp, lowest since 2019 pre-pandemic, while still maintaining best-in-class coverage ratios
- Net profit jumped 17% y-o-y to AED 4.8 billion on improving economic conditions
- Net interest margin stable at 2.45% with lower cost of funding from record CASA balances mitigating lower yields on loans and liquid assets
Strong capital and liquidity combined with a healthy deposit mix and higher profits enable the Group to support customers and empower them to benefit from the expanding economy
- Total assets stable during the first half at AED 694 billion maintaining a strong asset base
- Customer loans at AED 438 billion with Q2-21 a record quarter for growth in personal loans, credit cards and mortgages
- Deposit mix: highest ever CASA balances, increasing by AED 25 billion, positioning the Group very well for eventual rate rises
- Credit Quality: NPL ratio increased marginally by 0.1% to 6.3% in H1-21 with coverage ratio strengthening to 122.5% reflecting Group's prudent approach to credit impairment
- Capital and Liquidity: 158.8% Liquidity Coverage Ratio and 15.6% Common Equity Tier-1 ratio reflect the Group's core strengths enabling continued support to customers and the wider community
Emirates NBD continues to support and adapt to customers' changing needs and preferences, enabling secure banking through many innovative digital channels. The Group has reinforced its commitment to sustainability and responsible investment while further expanding its international presence.
- Customer support: AED 10.7 billion of support provided to over 120,000 customers
- Customer repayments: AED 6.8 billion of repayments demonstrate the Group's successful efforts in mitigating the financial impact on customers from Covid-19
- Social responsibility: Private Banking teams received certified training in sustainable and responsible investing, reinforcing Emirates NBD's commitment to embrace sustainable practices
- ESG: Τhe first bank in the UAE to offer an eco-friendly debit card made from recycled plastic
- Investment Banking: EmCap had a record half year, leading 68 bond and loan transactions, raising USD 50 billion for clients from 15 countries in multiple currencies
- DenizBank: Successfully issued a USD 410 million multicurrency syndicated loan, becoming the first Turkish bank syndication to include a Renminbi denominated tranche, reflecting DenizBank's appeal amongst international investors
- Digital: Liv. digital bank continues to successfully expand; servicing more than 470,000 customers in the UAE and 75,000 customers in KSA
- International Expansion: Increased KSA branch network to seven with the opening of a third branch in Riyadh
Hesham Abdulla Al Qassim, Vice Chairman and Managing Director said:
- "Emirates NBD's profits increased by 17% for the first-half of 2021 to AED 4.8 billion as business sentiment continues to improve.
- The Group's strong first-half results demonstrate its financial resiliency and the success of its diversified business model.
- The UAE economy has remained open thanks to the speed and success of the UAE's vaccination programme. With 70% of the population fully vaccinated, and with one of the highest testing rates globally, the UAE continues to be a safe and attractive destination for residents and visitors.
- During the Holy Month of Ramadan, the Group encouraged people from all cultures and faiths in the UAE to fast with a friend for a day and, in recognition of these efforts, we were delighted to donate AED 500,000 to the Al Jalila Foundation.''
Shayne Nelson, Group Chief Executive Officer said:
- "Emirates NBD's profits jumped 17% as the impact of lower interest rates was more than offset by firm cost management and a significant improvement in the cost of risk to pre-pandemic levels.
- I am proud that we continue to use the Group's strong balance sheet to support our customers, empowering them to benefit from the expanding economy.
- The Group expanded its branch presence in the Kingdom of Saudi Arabia to seven with the opening of a third branch in Riyadh.
- We reinforced our commitment to sustainable and responsible investment and launched the UAE's first eco-friendly debit card made from recycled plastic.
- In the second quarter we upgraded our global payment system, enabling much faster cross-border payments and more visible tracking, improving the overall experience for our customers."
Patrick Sullivan, Group Chief Financial Officer said:
- "Total income for the first-half of 2021 was up 9% to AED 11,540 million over the preceding half year due to increased transactional activity and stable margins.
- Non-funded income improved year on year with Q2-21 a record quarter for growth in personal loans, credit cards and mortgages.
- Margins remained stable as strong CASA growth helped mitigate lower yields on loans and liquid assets.
- CASA balances at highest ever level, positioning us well for eventual rate rises.
- In the second quarter we improved the efficiency and cost of the capital structure through a capital management exercise."
Financial Review
Operating Performance
Total income for first-half of 2021 was up 9% to AED 11,540 million over the preceding half year due to increased transactional activity and stable NIMs.Total income was down 9% y-o-y as higher non-funded income was offset by a decline in net interest income due to lower interest rates.
Net interest income remained flat over H2-20 as an improved deposit mix offset lower asset yields and declined 12% y-o-y due to lower interest rates and a decline in DenizBank margins. Non-funded income was up 41% over the preceding half year and 2% higher y-o-y due to higher activity, an increase in foreign exchange and derivative income and higher investment securities income.
Expenses for the first-half of 2021 of AED 3,764 million improved 2% over the preceding half year due to earlier management actions. Expenses were 6% lower y-o-y due to lower staff and operating costs, and lower costs from DenizBank.
Impairment allowances in H1-21 of AED 2,614 million reduced 30% over the preceding half year and 38% y-o-y due to improving economic conditions, and following proactive provisioning in 2020.
Impairment allowances in H1-21 of AED 2,614 million reduced 30% over the preceding half year and 38% y-o-y due to improving economic conditions, and following proactive provisioning in 2020.
The Group's net profit of AED 4,784 million for the first-half is 66% higher over the preceding half year and 17% higher y-o-y on improving economic conditions with DenizBank adding significant diversification to the Group.
Balance Sheet Trends
In Q2-21 net loans grew by AED 2.1 billion as strong demand for retail loans and renewed growth in corporate and Islamic lending offset the FX translation impact from DenizBank. In H1-21, loans were down 1% due to repayments of corporate loans including loans receiving support and the FX translation impact. Deposits were down 1% in H1-21 due to Turkish lira depreciation. The deposit mix improved with CASA growing by AED 25 billion, helping replace a AED 27 billion reduction in more expensive fixed deposits.
Liquidity remains strong with the Liquidity Coverage Ratio at 158.8% and the Advances to Deposits Ratio at 95.7%. During the first-half of 2021, the Group raised AED 20.3 billion of senior term funding, more than fully covering this year's term debt maturities.
As at 30 June 2021, the Group's CET-1 ratio is 15.6%, Tier 1 ratio is 17.6% and CAR is 18.7%.
During the first-half, the Non-Performing Loan ratio increased marginally by 0.1% to 6.3% whilst the Coverage ratio strengthened further to 122.5%, demonstrating the Group's continued prudent approach towards credit risk management.
Business Performance
- Retail Banking and Wealth Management (RBWM) had a record quarter for retail loans, with volumes reaching 1.5 times pre-Covid averages.
- 78% of RBWM customers are digitally active with 98% of all transactions now outside the branch
- Liv. grew its UAE base to over 470,000 customers and expanded with the launch of Liv. Prime, a membership based program offering premium lifestyle based benefits.
- Emirates Signature multi-asset funds program ramped up with AUMs crossing USD 250 million.
- Corporate and Institutional Banking (C&IB) partnered with major government entities to deliver automated and digitized platforms.
- Emirates NBD Capital (EmCap) led 68 bond and loan transactions during H1-21, raising USD 50 billion for sovereigns, quasi-sovereigns, corporates and financial institutions from 15 countries in multiple currencies. EmCap continues to enhance its ESG credentials, leading 12 ESG transactions. EmCap also successfully led four Equity Capital Market transactions during the first half of 2021.
- Global Markets and Treasury (GM&T) delivered a solid performance in H1-21 with net interest income improving 40%, driven by an increase in net interest income from hedging and banking book investments.
- GM&T improved the efficiency and cost of the capital base, retiring AED 4 billion of existing notes and replacing with a $750m more efficient AT1 issue.
- GM&T, CIB and EmCap jointly issued a USD 1.75 billion ESG-linked syndicated loan with cost a function of environmental and social targets.
- Emirates Islamic: expanded its business banking centre network to support small and medium entreprises with the launch of two new facilities.
- DenizBank's income of AED 3,313 million represents 29% of Group income. DenizBank contributed AED 1,036 million or 22% to Group's profit with AED 126 billion of assets representing 18% of total Group assets
- DenizBank continues to diversify sources of term funding, issuing a USD 410 million multicurrency syndicated loan and becoming the first Turkish bank syndication to include a Renminbi denominated tranche, reflecting DenizBank's international appeal.
- Saudi Arabia: Liv. KSA has grown to 75,000 customers with innovative pipeline of enhancements planned for the rest of the year. Branch presence expanded to seven with the opening of a third branch in Riyadh.
Outlook
The global economic recovery remains uneven, influenced by the success of vaccination programmes but threatened by the emergence of new variants of the virus. The speed of the UAE's vaccination programme has allowed the economy to remain open, even as other countries have struggled to contain the spread of the virus, and we expect the recovery in the non-oil sector to gain momentum in the second-half of 2021. Emirates NBD Research expects the non-oil economy to grow by 3.5% this year, although curbs on oil production will weigh on GDP growth, which is expected to reach 1.5% in 2021.
The Kingdom of Saudi Arabia's economy is expected to rebound this year after contracting 4.1% in 2020. Oil production cuts in the first quarter of 2021 will weigh on the GDP reading, even as the non-oil sector is expected to grow 4.0% this year.
The Egyptian economy has held up well in the face of the global pandemic, making it one of the few countries in the world to register positive GDP growth last year. While GDP growth likely slowed to 2.9% in the fiscal year ended June 2021, it is expected to accelerate to 4.9% next year.
Turkey also posted positive GDP growth in 2020, and the market expects improved growth of 5.5% this year. However, inflation uncertainty may weigh on the Lira.
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